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I am sorry guys, but i have to disagree with you. I just had a look at the Lundy case and what IRD has to say on the issue, and nowhere does it say that you do not have to pay GST on rental in these circumstances. The basic premise in my view remains the same - if you change use you have to pay back the GST you claimed on purchase and then you are allowed not to pay GST on rental. The Lundy case says that you do not have to pay all the GST that you claimed on purchase back at once, but rather you can pay it as you go, and because of the way the GST is caclulated in these cases it is more beneficial for the relevant person (and probably in somecases results in nil GST being due). However, i would have thought that in each case the calculations would be different and in some cases some GST may be payable. Therefore it is not correct to say that there is a rule that no GST is payable in such circumstances. I am not an accountant nor am i a tax lawyer, so i may be wrong, but this is my interpretation of Lundy.
Have a read through the following thread.
There is two issues
1) Is there GST due on rental income, if you have purchased a residential rental property as a trade or development, but have rented it out for a period before development or selling takes place. This is the issue addressed earlier and in the thread above.
2) If a property is purchased to trade, GST claimed, then the buyer changes his/her intention. In this case then generally GST would be repaid at fair market valuation at the time the use changes. I didn't think this was what Action was asking, as I understood that Action was still intending to trade/development but was just renting mean time.
Also just to clarify a little further, there is NO GST to pay on the rental income received, but a GST adjustment is still due, to account for the change of use of the property.
That is right Ross, we are just wanting to rent out the trade properties, not wanting to keep them in our holding trust, but sell them off later or whenever the time seems right.
If we dont have to pay gst on the rent, great, party on
You definitely don't, just apply Lundy Rules.
I have over 150 clients/friends/peers doing this, it is fully accepted by IRD now and has been for some time.
Originally Posted by Rosco
You are talking about paying GST on the depreciation you cannot claim. Correct?
All the best,
Dead right Niall, it is a ridiculous rule!!
Pay GST on notional depreciation you neither have to calculate nor claim. :-)
Boy - is this confusing?
Residential rentals and GST is one of the legacy
lies from the reds, the comrade commissariat
GST was promoted as a tax on the final user.
But when the fine print was looked at, residential
rental-providing PIs auto-politically-magically
became the end-users of the rentals that were
occupied by the real end-user-tenants.
I.e. the PI paid GST but was statutorily barred
from either recovering it or on-charging it. That's
what happens when socialists are in charge. Deep,
dark dishonesty and monstrous malfeasance.
Reading back, the issue seems to have got mired.
If the entity that is providing a product or service
is GST registered, it must pay GST on income and
can claim GST on expenses. Unless those expenses
relate to residential rentals. If so, neither can it
charge GST on residential rentals.
Belaboured by lies, beguiled by BS.
Another oddity of the Lundy calculations is that you pay GST on the notional depreciation on the LAND, whereas in other rules, land doesn't depreciate!
Some accountants 'step around' the Lundy rules by making the GST adjustment 1/9 of the rent, and working everything out properly when the property is sold.
If the IRD find out (or you tell them) that you now intend to keep the property long term, they will say that there is a 'deemed sale' (AKA "Can we have our GST back please"), meaning that you have to pay back the GST you claimed on purchase - could be a bit of a hit to the old cash flow.
Deeming, deeming, deemed!
There's that dastardly deeming device, again.
Originally Posted by cube
CIR: more tax revenue, if you please.
Last edited by Perry; 25-04-2009 at 11:16 PM.
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